FINANCIAL MANAGEMENT LECTURE:

GOALS OF FM

More specific, the financial manager must act in the owner’s or shareholder’s best interest in making
decisions that would - increase the value of the firm or the value of its shares.

As for profitability is concern, current year should be bigger than prior year.

All of these decisions aim to maximize the shareholder’s wealth thru maximization of the firm’s wealth

INVESTMENT DECISIONS

- How much of the firm’s total assets can be devoted to cash or to inventory or receivables?
- Also considers “disinvestment”
(assets that are no longer economically justified may need to be reduced)

FINANCING DECISIONS

- Deals with the question: if I were to maintain this size of asset or acquire asset, how would I
finance this?

Debt and equity financing or mix

How best to acquire the needed funds
Short-term loan? Long-term loan? Cost of financing?

85.2, 14.8

-CHECK WHY THEY NEED NEW INVESTORS TO EXPAND OR MAYBE FOR PAYMENT OF DEBTS

IMPORTANCE OF KNOWING HOW TO READ STATEMENTS

DIVIDEND DECISIONS

What are dividends?

SIGNIFICANCE OF FM

-CASH FLOW IS ONE OF THE CENTRAL ELEMENTS OF FINANCIAL ANALYSIS. It is important since the
financial health of the firm depends on its ability to generate sufficient amounts to pay its employees,
suppliers, creditors and owners.

-Strength of business lies in its financial discipline

-FM STUDIES THE RISK-RETURN PERCEPTION OF THE OWNERS AND TIME VALUE OF MONEY